Money tangle;

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VOL. XII NEW YORK, MAY, 1929 No. 5
The Money Tangle
" P L A Y I N G the market," using the
term loosely, seems to have become
the favorite indoor sport. On trains, in
waiting-rooms, hotel lobbies, drawing-rooms,
between the acts, and in various
and sundry other places one hears the
chatter about "stocks." Runners for
brokerage houses recount their gains and
losses. Manicurists are on the lookout for
tips. Society matrons wonder if "Hash,
common" is a good buy for a rise. In
short, the whole country, more or less, is
obsessed with the idea of making money
in the market.
Securities, in relation to the market, are
commodities, like iron and steel. An ex­change
affords a place where sellers and
buyers may meet and have their dealings.
The price of securities is determined by
effective supply and demand. When de­mand
exceeds supply, prices rise. When
supply overrides demand, prices fall. De­mand
is controlled by the purchasing
power of buyers. When money is easily
obtainable, demand increases and prices
rise. When the supply of money declines,
interest rates increase, demand for securi­ties
falls off; and unless the supply keeps
pace, the prices of securities drop. Thus,
the economist explains market prices.
Adam Smith, when he enunciated his
principles of economics probably never
dreamed of a stock market situation such
as exists in this country today. He was
not aware of the effect which might be
brought about by hundreds of huge in­vesting
companies, taking out of and
putting into the market, millions of dollars
worth of securities. He could not foresee a
market-crazed nation, nor a condition of
industrial prosperity which would enable
corporations to loan on call a volume of
surplus funds sufficient to jeopardize the
position of the Federal Reserve Board in
its control of money matters.
But the chances are that the simple
principles which comprise our economic
theory will govern in the present somewhat
disturbed situation. History will repeat
itself, perhaps through slightly different
manifestations. When industry needs the
surplus funds it has loaned to those who
wish to speculate in securities, industry will
recall those funds. If funds are not forth­coming
from other sources, money rates will
rise. When it is no longer profitable to
borrow money for speculation, there will
be a decline in speculation.
The wisdom required to apprehend all
angles and ramifications of the present
money tangle is vouchsafed to few. The
best one can do is to fall back on prin­ciples
which have governed such matters
since the dawn of civilization. Left to
natural laws, probably the situation will
right itself.